Not applicable to adult emigrants. No other proposals to simplify income taxes for individuals who don’t live in the United States. No help with the insane reporting requirements on foreign retirement & medical & disability savings plans. Some people may hope it’s a start from an administration which up until now has been totally deaf to the “special concerns and issues of Americans abroad” which the president claimed he would address when he was campaigning for our votes. Others will take it as what it appears to be at face value: a chance to get out while the getting is semi-good. At page 282 of the “Green Book” (all links added by me):
Individuals who became citizens of both the United States and another country at birth may have had minimal contact with the United States and may not learn until later in life that they are U.S. citizens. In addition, these individuals may be citizens of countries where dual citizenship is illegal. Many of these individuals would like to relinquish their U.S. citizenship in accordance with established State Department procedures, but doing so would require them to pay significant U.S. tax.
Under the proposal, an individual will not be subject to tax as a U.S. citizen and will not be a covered expatriate subject to the mark-to-market exit tax under section 877A if the individual:
1. became at birth a citizen of the United States and a citizen of another country,
2. at all times, up to and including the individual’s expatriation date, has been a citizen of a country other than the United States,
3. has not been a resident of the United States (as defined in section 7701(b)) since attaining age 18½,
4. has never held a U.S. passport or has held a U.S. passport for the sole purpose of departing from the United States in compliance with 22 CFR §53.1,
5. relinquishes his or her U.S. citizenship within two years after the later of January 1, 2016, or the date on which the individual learns that he or she is a U.S. citizen, and
6. certifies under penalty of perjury his or her compliance with all U.S. Federal tax obligations that would have applied during the five years preceding the year of expatriation if the individual had been a nonresident alien during that period.The proposal would be effective January 1, 2016.
This didn’t appear to be covered in the table of revenue estimates. Correction: As Tim points out, the revenue estimate is in the summary tables file on the White House/OMB website, rather than the Treasury website. They estimate it would cost $400 million over ten years, with more than half of that coming in the first three years as people scramble to take advantage of the offer.
Details of revenue estimates
| Deficit increases (+) or decreases (-) in millions of dollars | Totals | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Heading | 2015 | 2016 | 2017 | 2018 | 2019 | 2020 | 2021 | 2022 | 2023 | 2024 | 2025 | 2016 – 2020 |
2016 – 2025 |
| Provide relief for certain accidental dual citizens | ……… | 60 | 103 | 55 | 23 | 24 | 25 | 26 | 28 | 29 | 30 | 265 | 403 |
I am quite interested to know the underlying number of relinquishers OMB used make these estimates (and for that matter, whether they have offset those estimates by the $2,350 fee that many accidentals are going to have to pay because they only qualify for renunciation and no other method of giving up citizenship). I assume that the estimates for ongoing deficit increases past 2018 are attributable to one-time losses of revenue from additional relinquishers,rather than ongoing loss of revenue from the initial group of relinquishers.
For example, they may be using the utterly false (and late again for this quarter) Federal Register relinquishment numbers and assuming that all of them would qualify for Obama’s plan. (That would also mean they’re assuming that no non-accidental Americans have ever given up citizenship because of the FATCA mess that Obama signed into law — clearly an incorrect assumption.) In that case they would be saying that in 2020 they’re expecting an average annual revenue loss of $8,000 per person, rising to $10,000 per person by 2025.
If OMB understands that only a small proportion of recent relinquishers qualify for Obama’s plan, then they’re trying to claim that the revenue loss per person would be much higher — which I don’t think is supportable. On the other hand, they may also understand that the actual number of relinquishers is higher and that only a small proportion of them will qualify for Obama’s plan. Though given the dubious earlier models of the effect of cancelling the FEIE, I get the sense that the government does not have this much of an in-depth understanding of emigrant tax issues.
Treatment of businesses owned by American emigrants
Another small mercy: the proposed 19% minimum tax on foreign earnings only applies to CFCs owned by “entities taxed as domestic C corporations” — finally, an implicit acknowledgement that some owners of CFCs are human emigrants rather than multinational corporations. Unfortunately the 14% tax on “previously untaxed” foreign earnings does not appear to include that same acknowledgement.
Will not affect ADCS lawsuit
Update, 6 February: Stephen Kish has already spoken with Mr. Arvay about the Obama budget proposal, and states:
Some you have expressed concern that should the Obama budget proposal, if ever enacted, provide some relief to duals-at-birth, like our two Plaintiffs Ginny and Gwen, this could mean trouble for our lawsuit — because both Plaintiffs are duals-at-birth. Apparently, Canada’s Mr. Roy Berg himself, a U.S tax compliance professional, is mentioned in an article (which I have not seen) which states that should the tax code on duals-at-birth change for the better, this might “spell the death-knell” to our Canadian lawsuit.
Please do not worry. The Arvay team has been quite aware of the issue of specific characteristics of plaintiffs from the very beginning.
Today Mr. Arvay also has confirmed with me, yet again, that our legal strategy is not limited to the specific characteristics of the two plaintiffs, that additional plaintiffs can be added to the lawsuit should this ever be necessary, and that our aim has always been to include affidavits from people who span a range of differing characteristics.
This looks like good news for Ginny and Gwen … IF the legislation is passed. I have no idea how Arvay and Gruber will handle this new twist though. It seems the fundamentals of the lawsuit still remain (loss of Canadian sovereignty and loss of charter rights) but do we still have plaintiffs with standing? I do know this … I’m still technically a dual of a different species (U.S. person – Canadian) and still worried that neither the U.S. or Canadian government will give two hoots about bringing any clarity or closure to me and who knows how many others there are in GC limbo. There’s been a lot of harm done (monetary, mental and medical) by the CBT-FBAR-FATCA triad and I don’t want to see either government skate away without a penalty. Releasing a subset of the CBT prisoners is a step forward but the ultimate goal should be the release of everyone.
@Tim, Thanks for finding the estimate. I think it’s way too high, because most Americans abroad don’t owe any US tax, and those who do only owe a residual. The proposal might actually bring more revenue due to the renunciation fee. I really wonder how they do these estimates. In any case, the estimated “cost” is 0.001% of the total federal revenue.
@Queenston, Yes, nonresident aliens are the whole population of the world living outside the US who are not US citizens. They are only taxed by the US on income from US sources, usually through withholding without filing any forms. I suppose most accidental citizens, like most nonresident aliens, don’t even have US income, so by definition they are already compliant. The proposal doesn’t ask them to prove they don’t owe tax, it asks them to certify that they are compliant with US tax law as nonresident aliens. The certification is done by checking a box on a form.
@all, I really don’t think this proposal, or any other proposal in the presidential budget, will go anywhere.
Can anyone guess what happens to those who might qualify but spent tens of thousands of dollars in U.S. tax in order to get compliant a few years ago?
@Mark Twain
I disagree with your comment “It shows that Obama wants to get rid of Americans.” I think it shows that Obama wants to get rid of NON-Americans. The problem is that his definition of an American is still far broader than our definition, but at least they are admiting that the IRS is unfairly defining Accidental Americans as US taxpayers who owe tax on their world-wide income.
I think the fact that they acknowledge and use the term “Accidental American” is a big step forward. I don’t see this as a “divide-and-conquer” step towards us as @recalcitrantexpat posted above, but the removal of another brick from the wall that is CBT.
@Shadow Raider,
I know nothing of how their budget process works. Is this presidential budget an all-or-nothing list, or can it be adopted in part?
The value of this item set at $403 million seems like bad news. It’s probably much closer to zero. I fear that the big number could serve to have it stricken from the budget? Nobody in the budget process will have any sympathy for “Accidental Americans” not paying taxes.
This part confuses me. “4. has never held a U.S. passport or has held a U.S. passport for the sole purpose of departing from the United States in compliance with 22 CFR §53.1”. What does the second part mean:
“or has held a U.S. passport for the sole purpose of departing from the United States in compliance with 22 CFR §53.1”.
I meet all of the other conditions except I got a passport when I was 18 after the border guard informed me the United States considered me an American and I needed to have an American passport in order to enter the USA. That was the day I found out I was an accidental American. So I could be punished for following orders of the US Border Guards and not be eligible for this program? That is so stupid. I thought I had to get a passport to follow American law and not detained at customs. I didn’t want one.
@Bubblebustin
Perhaps that is the very reason for holding on to CBT. Not so much to tax Americans abroad but to hinder capital flight?
@Polly: The purpose of CBT is control and punishment.
Unfortunately, Polly, these guys haven’t figured out that they need to make it more attractive for people to keep their money in the US. And what’s the difference between a Tina Turner and an Eduardo Saverin? Public opinion, it seems! For all Schumer knows, love had everything to do with it for Saverin, and Turner did the renunciation dance for money. What’s to prove otherwise?
This combines with the reciprocity promises in his budget (page 168?). It’s a ploy to please the IGA signers, and those that have signed the IGA’s but have yet to have them approved by their parliaments.
Behind closed doors, this is what foreign governments have been complaining about FATCA, because it relates to “real Canadians” and “real Europeans” and “real fill in the blanks”.
Obama is an expert at keeping people happy with his promises.
Check and see if the implementation requires legislation or if he can get away with Executive order to implement it. If it can be done, then this could be a good thing for all of the people that don’t want to be Americans. But for it to be good for those persons, they truly will have to want to not be American.
Good grief – sorry about typo’s. Trying to use my phone to post.
@Queenston and probably others:
My understanding of Section 6 is that you have to certify that you have been tax compliant for 5 years prior to expatriation for any US taxes that would have been owing then as if you had been a non-resident alien during that period. As far as the US is concerned, you weren’t during that period a non-resident alien, you were in US law a US citizen (at birth) whether you knew it or not.
What that means, if I understand US tax law correctly, is that if during those five years you had received US source income, which ANY non-resident alien would have had to file with IRS (foreigners living outside the US who have US source income are required to file a tax return, at least for some forms of income), you did so. If you had absolutely no US source income during that period, there is no problem because no non-resident alien has to report squat to the IRS if they have no US source income, AFAIK.
If you during those five years received US source income and didn’t file a tax return on it, as anyone living outside the US who isn’t a citizen would have had to do, then you are screwed (unless you file five years of back returns on that US source income and pay any penalties that result). If, however, you had NO US-source income during that period, or if you had filed a return on US-source income you had received during those five years (likely a form 1040NR which is for non-resident aliens not for US citizens who file 1040 I think), then as far as I can see you’re free and clear and can in fact certify under penalty of perjury that you were in fact compliant with US tax law (compliant in that you had no requirement to file a return on US source income since you had none, or did have a requirement to file and had complied).
As far as I can tell, if you qualify under points 1-6 there is absolutely no requirement for you to file or report non-US-source income to the IRS, before during or after your renunciation/relinquishment. Unlike duals-by-naturalization or US non-dual citizens living outside the US, who will still have to file on non-US-source income whether or not they actually have to pay any tax on it. I think.
But I hasten to add that I’m neither an accountant nor a lawyer, and if you’re in doubt (if and when this proposal actually becomes law, doubts about which I share with other posters on this thread), you should consult a reliable professional about that point. Which of course is always the best advice for anyone contemplating doing anything about this FATCA quagmire, if they are affected by it.
I would like to know how they came up with $403 million in lost revenue. The US cannot even have an accurate number of its deemed citzens living abroad, especially those Accidentals born overseas, how in the world could they even attempt an estimate? They certainly do not know about me, other than my birth record in the US. Is this based on the estimated lost penalties they hoped to collect?
@Blaze “CBT is control and punishment” You are so right. This is why it must go, taxation is only the excuse to inflict harm, particularly when it seems that most of the revenue seems to come from penalties, not actual taxes.
@ Mark Twain. I agree, this proposal will only be good for the people to whom it applies who do NOT want to be Americans and never have wanted to be.
I have always believed, from the first day I heard about FATCA, that the US position has been and likely always will be (unless they actually drop CBT and go for RBT like everyone else): if you want to be an American, you have to pay the price of filing tax returns to the IRS on all income from no matter what source, or be penalized up and down your wazoo. That isn’t new; they’ve had that requirement since 1913 from what I recall reading, whether or not Americans living outside the US have all been aware of it. I think it’s an absurd requirement, but it is US law, and if you really want “the blue passport” for whatever reason, you’d better be prepared to pay the price unless and until they change their law.
If you want to be a US citizen and don’t want to pay the price for that, you won’t get any sympathy from very many people in the US, nor probably from a hell of a lot of people outside the US either (and I include Canada in that statement, and not just Tory MPs and their supporters). I think it’s important to understand that and deal with it. One way or another.
@Bubblebustin
No- I really think you are on to something! CBT is to hinder people from leaving with their money- taking it out of the country. Of course they don`t care about the reasons of Tina or Eduardo- but what is daunting is: what if everybody just took their stuff and left? Who would be left? I always thought that the main focus was gathering the tax money. But what if the real reason for enforcing CBT is so people don`t leave and take their wealth with them? Similar to inversions- what if that is the aspect that is really of far greater importance?
@Shadow Raider
I agree with you that the estimate of revenue loss is too high but it is important that Treasury is showing a loss.
@Schubert1975, amen brother!!!
The problem is the USG claiming persons who do not want that damn blue passport.
@Schubert1975,
You said above, “If, however, you had NO US-source income during that period, or if you had filed a return on US-source income you had received during those five years (likely a form 1040NR which is for non-resident aliens not for US citizens who file 1040 I think), then as far as I can see you’re free and clear and can in fact certify under penalty of perjury that you were in fact compliant with US tax law”
Do you think one could add to that, “or if you had tax withheld from source in the US”? For example, I think people who own and rent out property in the US have the rental agency withhold tax and then do not have to file.
You emphasized “NO US-source income, but there is a $3950 threshold/exemption (for wages, but I guess not investment income):
http://www.irs.gov/publications/p519/ch07.html#en_US_2014_publink1000222588
@ George
Right on! I’m a non-American on non-American soil who does not qualify for their “damn blue passport” and has never wanted one anyway. I just want the damn U.S. government with its insane concept of “personhood” officially and completely out of my life, forever. I don’t even care if I’m banned for life from mingling in Mordor with the “exceptional” ones. Just leave me alone, in my homeland of Canada. Above all I want the Canadian government to cease and desist with its perverse enabling of U.S. witch huntery … and an apology would be nice too.
The President’s estimate on what this will costs the U.S. Treasury should be ZERO. The taxes that are paid are in fact being stolen from the treasuries and economies of other countries. He should tell the truth and stop lying.
@WhatamI
I stand corrected and defer to your better understanding of US tax law than mine. I haven’t filed a US tax return since the mid-1970s, and subsequently have made no attempt and had no reason to follow the ins and outs of the absurd complexity and illegibility of their tax forms since I relinquished my USC way back then.
The point remains, I think, that if you have any US source income that would trigger an IRS filing requirement even for a non-US person living abroad with that US source income, to qualify for this new proposal you need to comply the same way that non-US person would have to comply if they had the same income sources you had, in the US. Whatever those compliance procedures might be, assuming one can figure them out … That’s where the tax professionals come in … Not me, thank God.
But as others have noted, this is all idle speculation until Congress actually passes Obama’s budget with this proposal included. I don’t recommend that anyone hold their breath on that, much as I hope for those who would benefit that it might come to pass.
To add to the comments about:
“4. has never held a U.S. passport or has held a U.S. passport for the sole purpose of departing from the United States in compliance with 22 CFR §53.1,…”
The second largest population of US citizens outside the US (2nd to Mexico) is in Canada. Thus, the second largest population of duals who might seek relief via this avenue are going to be blocked if #4 works as it seems to read.
The probability that Canadian duals can use this route is greatly complicated by developments after 9/11 wherein the crossborder control rules were tightened between Canada and the US – eventually resulting in border travel being possible between the two countries only with a passport (from either country until eventually a US border guard demands the US one only) – (leaving aside the Nexus pass and similar options) which would have resulted in a spike of US passports issued since 9/11 to those born duals who were forced by historical developments to obtain the US passport or else had one obtained on their behalf (in the case of minors or those without requisite legal capacity/competence). The law about US citizens travelling into and exiting the US only on a US passport was a complete surprise many of us – certainly it was to me until very very late in my life – having travelled cross border without a US or any passport for decades – and so too for countless other Canadian residents – because, in practice, it wasn’t publicized, or enforced as it is now.
US policy makers are no doubt as ignorant or careless on this issue as they are on many of the other realities of the impact of US laws made to control those living and or born ‘abroad’ outside the US, but, surely it has occurred to some of the brighter ones that the border controls that they are busy tying up as tight as possible has FORCED more dual Canadian-US citizen individuals to obtain US passports than ever before. Which means that if #4. is taken at face value, more of the Canadian population who might have been likely to be born dual (because of historic crossborder flows, family ties, work, schooling, commerce, intermarriage, and border hospital births) and who are likely to want to expatriate their unwanted US status are to be denied relief. Is that the result they intended, or is it due to inadvertance, ignorance, or sloppiness, or due to them not truly wanting to actually provide the relief they appear to at least pretend to offer? Do I misunderstand stipulation #4?
Trying to figure out what this might mean for my offspring who are now adults born and raised in Canada to U.S. citizen parents (now dual citizens). The post uses the term “relinquish” which raises hope not having to pay the outrageous renunciation fee. Both offspring began filing tax forms in response to the pressure/panic but neither has yet filed 5 years. They most certainly will have filed 5 years before Jan 1, 2018. Neither has ever had U.S. income nor owed US tax on their Canadian income. One voted in one presidential election. (Might as well vote if you have to file tax forms). Can anyone who understands this better than I, offer an opinion on how this would affect them IF it is enacted?
Why the passport provision? I don’t get it. That doesn’t mean we wanted our American citizenship. I got one when I found out I was considered an American by a border guard. He told me I needed one to enter USA since I now knew I was technically American. He said I shouldn’t use my Canadian one. I was pissed when I found out I was American. Obtaining a passport doesn’t mean I became American, that happened at birth, so why would having a passport exclude me from this proposal? Who comes up with this crap? A passport is not proof that someone embraces American citizenship. Didn’t want it when I found at 18 and don’t want it now.
I guess if Boris hasn’t had any US sourced income, he might qualify?